Shoppers carry their purchases along the Magnificent Mile shopping district in Chicago.Scott Olson
The U.S. recovery is growing ever more feeble.
Fresh economic readings, and a measure of the pulse of business leaders and consumers, show confidence ebbing and signs of softness in major industries.
"I don't think we'll necessarily see another recession, but I do think that we are stuck in one massive rut here," said Michael Gregory, a senior economist with BMO Nesbitt Burns. Growth is not negative, "but that's about the most positive thing you can say about it," he said.
A consumer sentiment index, compiled by the U.S. Conference Board and released Tuesday, fell to a seven-month low in September, and a separate survey of chief executives showed a notable decline in optimism in the third quarter, the first such drop since early 2009.
Confidence is waning despite a relatively strong month for stocks, indeed one of the best September performances in decades. But outweighing the market returns are disturbing new signs of weakness in such key sectors as housing and manufacturing. This in turn has sparked renewed fears of recession and raised the spectre of economy-strangling deflation, now that government stimulus programs and tax incentives are winding down or already over.
"What we're seeing now is a number of transitory factors that buoyed growth disappearing," said Brian Bethune, IHS Global Insight's chief U.S. financial economist. "We're still seeing growth, but it's at such a low rate that it's not generating enough momentum to precipitate a lot of business spending, mainly on employment."
An end to a home buyer tax credit in April has particularly hurt the already battered housing sector. The Case-Shiller home price index for the 20 leading U.S. centres dipped only 0.1 per cent in July on a seasonally adjusted basis. But analysts expect steeper price declines nationally through the rest of this year and into 2011. And more than 40 per cent of sales this year are likely to involve foreclosed homes or other distressed properties, analysts warn.
On the manufacturing front, activity in the central Atlantic region plunged in September, the Federal Reserve Bank of Richmond said. The bank's manufacturing index fell to minus 2 from 11 in August and its shipment index slid to minus 4 from 11.
The anemic performance is sapping confidence and making the economy much more vulnerable to adverse shocks of any sort - from volatile stock markets, a global currency war now brewing, a sudden spike in oil prices or the widening threat of deflation.
Most economy watchers are still steering clear of a double-dip recession scenario, but few are forecasting anything but a long, slow and painful recovery.
IHS Global Insight is forecasting economic growth in the third quarter of only about 1.3 per cent on an annual basis. Besides the disappearance of government inducements to buy big-ticket items like homes and cars, businesses are no longer adding to inventories, and excess capacity remains a problem in most industries from auto manufacturing to tourism. As a result, prices are essentially flat or falling, which has spooked the Federal Reserve into keeping a close watch out for deflation.
"I'm not saying [the economy]will be relapse into recession," Mr. Bethune said. "But the risk of a relapse is non-trivial. If you're only growing at 1.5 per cent, it doesn't take much to get you down to zero."